If a firm's ROA and ROE are equal, it can be concluded that the firm is:
A) exhibiting constant growth year over year.
B) in need of capital and should issue more stock.
C) without debt in its capital structure.
D) too highly levered.

Question

Quizplus · Accepted Answer

When a firm's Return on Assets (ROA) and Return on Equity (ROE) are equal, it indicates that the firm does not have debt in its capital structure. This is because ROE is typically higher than ROA when debt is present, due to the leverage effect.

If a Firm's ROA and ROE Are Equal, It Can